Applied Materials Climbs on Earnings News

The chip-equipment maker reported strong quarterly growth in revenues and profits

Computer chipmakers are notorious for rubbing their hands together with glee as they entertain unrealistic growth expectations -- only to over-invest and fall flat on their faces. While some analysts have been worrying about what happens to the industry in the coming months, Applied Materials (AMAT), which supplies equipment to those chipmakers, nonetheless managed to post a sharply stronger profit during the three months ended Jan. 29. After the news investors bought Applied Materials stock on Feb. 14.

The Santa Clara (Calif.) company had net income of $403 million during the quarter, or 183% more than the same period last year. Net sales during the January quarter were $2.28 billion, up 23% year over year. "Rapid customer acceptance of our new leading-edge platforms for (things such as processes that can make devices that will convert light into energy), as well as strong demand for Applied's service products, set the stage for future growth," CEO Mike Splinter said in a press release late Feb. 13.

After the news investors bid up the stock 4.1% to $18.94 per share in early trading on the Nasdaq.

Applied Materials has been pushing aggressively into new businesses. For example, the company bought Applied Films in 2006, which supplies equipment for things like flat panel displays and solar cells. "The recent acquisition of Applied Films helped pave the way for Applied to enter the emerging solar equipment market. Solar panels and chips share similar manufacturing technologies, allowing Applied to use its core technology expertise," Morningstar analyst Andy Ng wrote Dec. 13.

Meanwhile the company remains dominant in the industry with its existing customers. Standard & Poor's equity analyst David Kaplan reiterated a buy opinion the stock on Feb. 14, noting factors like Applied Materials' strong position with foundry customers that make computer chips. The company said it expects markets in areas like flat panel displays to pick up during the coming months. "We believe AMAT is well positioned to benefit," Kaplan wrote.

S&P had been expecting an eventual turnaround in the industry anyway. "We think 2007 will start off soft following unusually strong industry sales growth of 25%, elevated inventory at chipmakers and broad global economic headwinds," analysts wrote in a Dec. 29 business summary of Applied Materials. "We believe after a period of digestion, the second half of 2007 will see growth."

(S&P, like, is owned by The McGraw-Hill Cos.)

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